After almost two years into the pandemic, CEO and founder Siddhartha Siddhartha and the Intain team conducted an audit of their platform and found more than $3.75 billion in assets in the database.
Since Intain’s founding in 2018, the goal has been to build the “boring blockchain” that conducts the transactions for all structured finance deals in the world.
Siddhartha said after surviving the first crypto winter without launching a token and gaining 20 partners over the past year, that opportunity is within reach.
“If you look at the lending industry, everything that’s in vogue in technology is being adopted into lending, from AI underwriting, 20-second lending, digitization, etc. But the moment that loan enters the capital markets cycle occurs, it starts to evolve like Excel spreadsheets and emails,” said Siddhartha.
“So it’s almost like the windward and leeward side of technology: all the technology is on the front end of credit and there’s absolutely nothing on the back end.”
Truth and data automation
Siddhartha said Intain hopes to solve this problem by merging the legacy Excel spreadsheet system via rails into a private but single-truth ledger system that opens secured financial data to more than just a simple deal flow.
He explained that the team did not aim to build a blockchain platform, but instead used blockchain technology to run the data layer with AI and analytics on top.
Intain allows partners to add structured finance trades to their ledger for real-time data visualization, portfolio tracking and automated smart contracts, which Siddhartha says is creating a dedicated market for structured finance trades.
“Our goal is to make the entire structured financing process fully transparent, trustworthy and efficient.”
He said he now intends to build a retail element. While striving to become the number one structured finance platform, the team built a securitized loan defi tokenization element for crypto traders.
Intain outlasts the hype train
More than a decade after the 2008 financial crisis, structured finance is still stuck in the past, Siddhartha said. With every transaction, the industry plays ping-pong between trustee, investor and broker. All of that is a thing of the past with blockchain, Siddhartha said, a system that can be verified and searched by anyone with the keys to its “siloed database.”
But after coming up with the idea in 2018, where was it: Outlasting the hype train that was infecting and building the crypto space, Siddhartha said.
Instead of offering tokens and an ICO for retail investors, Intain went down the infrastructure route for trading and institutional use in a very niche way.
“We started in the USA in early 2019 at the Structured Finance Vegas Conference; We signed the first partner later that year and went live in 2020,” Siddhartha said. “We’ve kind of outlasted others who have tried to address this issue, and after an initial struggle to convince people, we now have the momentum.”
The platform recorded 20 new customers in 2021. Siddhartha said deal flow volume doubled twice, from $2 billion at the end of the third quarter in September to about $3.9 billion for the period ended December 31.
Why Blockchain for Database-Like Technology?
Siddhartha said that raising capital in the US is very inefficient when it comes to structured finance. To automate it, you need three things, said Siddhartha.
“Number one is a version of the truth, which means that the service, the trustee rating agency, the investor; all should agree as to what the facts of the matter are. That’s something blockchain offers us,” he said. “The second thing blockchain offers is immutability, and the third; verifiability. We use blockchain in our data layer for these three functions, but we’re not actually building a blockchain platform.”
Suppose a company has issued 50,000 loans to be securitized as collateral to raise funds; You need a party to review these loans. At Intain, this happens automatically, and investors see “that’s 50,000 real loans” on the marketplace, says Siddhartha.
This is where the AI engine comes in; to read the credits and match them to the data. Siddhartha said loans are “allocated” or structured into different “pools” based on risk, term or other factors. Intain automatically categorizes tranches through smart contracts making it easy for the industry to work with.
Auto Smart Contract Tranches
“Let’s say we have a loan pool of 10,000 loans: the safest loans would be invested by insurance companies, mutual funds could invest in the middle tranche; Hedge funds can invest in the bottom tranche, sometimes also called the equity tranche,” said Siddhartha. “I’m just simplifying this, but all of these structures are written in our platform as smart contracts.”
When real-world services like banks and insurance companies interact with these loans to collect monthly payments, they use separate software that doesn’t make things any easier.
To build the smart contracts, Siddhartha said the team learned from European regulator ESMA, which has published best practices for every asset class, from credit cards to commercial real estate loans. At the push of a button, the contracts calculate how much money each tranche owner will receive when they are paid out, based on ESMA data.
This means things are automated and investors or loan servicers can easily browse the loans at a glance: the system is more like a marketplace. Data on every searchable metric imaginable, such as borrowers in the tranche living in Florida or being exposed to Russian assets, is automatically stored in the ledger.
“Maybe I want to find out if COVID cases are very high in New York, in terms of my exposure to New York credit, I can find that out,” Siddhartha said. “But it could also be that the borrower is in New York and I’m concerned about the COVID cases but the property is in Florida where property prices may fall? So I can drill down based on the condition of the borrower or the condition of the property: I can do whatever analysis I want to do.”
Intain uses Hyperledger Fabric
Intain runs on Hyperledger Fabric, having been tracked by many different blockchain architectures like Altri. Siddhartha said they have been working on the Hyperledger platform since version 0.9 since 2018, which is a private permission blockchain.
“It’s a private permission blockchain, so we don’t face the challenges that Ethereum etc. face. It’s easy to bring parties to our platform as nothing is public. And it’s not as inefficient or slow as many public blockchains,” Siddhartha said. “If we tokenize any of these pools and list them for investment, it will be done on public blockchains, but all of our management will be done on a private blockchain.”
Future plans for world domination
Intain is aiming to be the standard platform in the industry by the end of 2023, and Siddhartha said they are on track to achieve that goal.
The hardest part is convincing a world of new crypto lovers why they chose the boring, sanitized infrastructure route. He said the new challenge is to design a defi platform to encourage new crowdfunding investments in structured finance deals.
“We speak to four of the top five trustees; One of the top five trustees is already on a platform. So we should be able to achieve that in about one and a half to two years,” said Siddhartha. “This is not an innovation for us. This is 2019’s innovation for 2020. So now let’s work on the problem: Can I take these tools and tokenize them and attract a whole new group of investors to provide capital to the lending industry?
The idea is to build a system that will normalize a $10 million transaction issued to online investors. The team plans to launch a defi pilot by the end of the second quarter of this year, by June, Siddhartha said.
“I don’t want to set a schedule for how the adoption would work there, because it’s a completely different area,” said Siddhartha. “But that’s our view of being the default management layer in trad fi and then using that infrastructure as a bridge to bring trad fi issuers into the defi world to get capital.”
Defi and the end of postmodernism
Eric Mitzel, VP of North America Sales and Client Solutions said the blockchain industry has been growing. As a result, blockchain platforms have become routine but crucial layers of trust.
“There is an incredible amount of investment in decentralized finance on the blockchain and we don’t need to be a part of it right now as building credibility by delivering results is critical,” Mitzel said. “We have taken careful steps to implement a pragmatic use of blockchain that acts as a bridge into the existing structured finance world served by agents and trustees within the industry.”
Contrary to the idea that Tradfi doesn’t want defi investors to screw up their organized tranches, Siddhartha said the hard part of defi investing is convincing crypto natives to get involved.
“Actually, the friction is reversed: because of the crypto boom, the defi investor is someone who has tasted blood. They’re almost looking for 15-20% returns,” he said.
“The lender raising capital aims to raise 3-5% of the capital. The challenge here would be how to get a defi investment: someone so used to eating steak, how do you get them to eat broccoli?
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